Non-negotiable: all military members will be subject to Trump’s payroll tax deferral

All active-duty military members as well as federal civilian employees will be subject to the president’s upcoming payroll tax deferral, a senior administration official told Federal News Network Friday evening.

The president’s payroll tax deferral, which the administration said all payroll providers will launch in unison later this month, has left federal employees, their unions and members of Congress scrambling this week for more details about the policy and its impact on the workforce.

The Coast Guard was the first military service to publicly inform its members that they’d be subject to the changes. In a message to the workforce Friday morning, the service said it will defer a 6.2% tax on employee wages and basic pay for military members from September through December, and that the deferrals are “non-negotiable.”

The payroll tax deferral applies to all Coast Guard military members who make $8,666 a month or less, the notice said.

As Federal News Network previously reported, civilian employees whose gross, biweekly wages are $4,000 or less are also subject to the payroll tax deferral.

Private sector employers have the option of implementing the payroll tax deferral, which stems from an Aug. 8 presidential memorandum, for their employees. As the nation’s largest employer, the federal government is planning to implement it later this month, though many questions remain about the plan and its potential impact on the workforce.

Like many agency notices on the president’s planned payroll tax deferral, the Coast Guard message is light on specifics. It does, however, give some more details to questions that federal employees have raised over the past week about the upcoming payroll tax deferral.

The Coast Guard notice, for example, reiterates the payroll tax deferral affords employees no opportunity to opt out.

The changes in payroll tax deductions are temporary, and federal employees will have to pay back deferred taxes starting in January. They’ll have until April to do so before penalties and interest may accrue, the IRS has said.

The Coast Guard suggested employees and military members will pay the deferred taxes back over the course of several months, as opposed to a lump sum.

“The deferred payments will be subtracted from paychecks in January, February, March and April 2021 in addition to regular withholding,” the notice reads.

For employees or military members who leave government service before the year ends, deferred taxes will be taken out of final pay, according to the Coast Guard notice.

Some agencies have gradually provided their employees more information about the upcoming tax deferral but again are light on details.

“Many employees have asked if there’s a way to somehow opt out of the deferral,” Robin Bailey, chief human capital officer at the IRS, told agency employees Friday morning in an email, which Federal News Network reviewed. “We have had many discussions with Treasury and they have confirmed that no eligible IRS employees can opt out since all Treasury payroll providers must adopt the deferral across the board. We’ll provide more specificity on who is eligible along with Q&As next week.”

The IRS is still confirming when exactly employees will be subject to the president’s payroll tax deferral, Bailey said.

A notice to Customs and Border Protection employees early Friday morning provided even fewer details. The email, which Federal News Network reviewed, only reiterated the details the National Finance Center provided late last Friday in a notice to its customers.

“Employees should seek guidance from tax professionals to determine impacts on an individual basis,” the CBP notice reads.

Federal employee unions have spent much of the last week pressing OMB for details on the president’s payroll tax deferral.

The National Treasury Employees Union, which wrote to OMB Director Russ Vought earlier this week with a long list of questions about the upcoming tax deferral, said it has not received a response.

 “We are nearly four weeks out from the issuance of the president’s executive order on payroll tax deferral and the lack of information for federal employees is unconscionable,” Tony Reardon, NTEU’s national president, said Friday in a statement. “They deserve to know the full impact of this deferral on their paychecks including whether the program has already begun and how these deferred taxes will be collected next year. There is a distinct lack of transparency and disclosure on the financial implications of this executive order. As we saw during the historic government shutdown, many federal employees live paycheck to paycheck, and the government should not change those checks without adequate notice and complete honesty about what it means to their families’ finances.”

A senior administration official told Federal News Network earlier this week payroll providers were planning to implement the tax deferral in time for the second paycheck of the month. For many civilian employees, the second paycheck is scheduled on or around Sept. 18.

Military members are paid in the middle and at the end of the month, and their next paydates are scheduled for Sept. 15 and Oct. 1, according to a DFAS pay schedule for 2020.

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